Nothing ventured, nothing gained – radical changes for charities?

Garbutt + Elliott partner Ian Pickup discusses issues that need addressing in the third sector.

In his 2016 book ‘Spaceman’ Mike Massimino who achieved his lifelong ambition to be an astronaut, quotes Alan Bean who flew on the Apollo 12 mission and was one of only twelve to walk on the moon.

Lecturing to fellow astronauts Bean said ‘What most people want in life is to do something great, and you have been given the opportunity to do something great’
Having spent 20 years working with and advising charities it is my experience that the vast majority of workers in the charity sector want to do exactly that.

The big question is, given the framework within which charities have to operate, are we helping charity staff to achieve their goal.

The answer is definitely NO.

Below are three areas which need addressing, difficult though they may be:

The failure of government to plan funding for charities in times of recession

Every 10 or 15 years or so history shows the UK experiences a recession following a burst in the housing bubble e.g. 1980, 1990 and 2008. The result is predictable every time. Jobs are lost, individuals become homeless, personal relationships fragment, and as shown by research mental health problems ensue and drug and alcohol abuse becomes more prevalent.

The impact for charities is a significantly increased demand for their services. Unfortunately it is just at this time when the services of charities are most needed that funding to the voluntary sector is cut.

Surely it would make sense for government and local government to set aside funds when the economy is strong, designated to enable delivery of services during a period of recession, when the demand on charities increases?

Funding agreements

Charities obtain funding from a variety of sources. One area that causes problems for many charities, especially those with limited resources are the funding agreements for grants and contracts.

The agreements are often long winded, contradictory in their wording and unclear as to whether the funding is a grant or a contract, leaving charities uncertain (without specialist advice) as to their liability to VAT, or whether unspent funds need to be returned to the funder etc.

Different local authorities have significantly differently worded agreements and often include the words; grant and contract in the same agreement.

Model memorandum and articles exist for charities. Is it too much to ask The Local Government Association and associations of other funding bodies to agree a model template for funding agreements to charities as best practice? It would create uniformity and save charities time and costs in seeking an external review of their agreements.

VAT, its cost and complexity

In 1972 Anthony Barber, The Chancellor made a huge error when he said “VAT will be a simple tax on the supply of goods and services.”

For many charities, VAT is the most complex area of taxation. It is no longer a “simple” tax!

Our withdrawal from the EU in 2+ years is an opportunity for government to radically simplify VAT for charities and remove the tax burden. At present hospices are among a selection of charities that can claim back input VAT incurred on non-business activities. This exemption could be extended to other charities.

Alternatively why not determine that all purchases made by charities would be zero rated by the supplier for VAT purposes thereby relieving charities of the burden of input tax that in many instances at present cannot be recovered.

There are many other issues that need to be dealt with pragmatically.

The above are big changes and lobbying for VAT changes for charities is nothing new. However only by addressing specific issues can we help charities to focus on their goals ‘….and do something great’